British Music Retailers Begin Digital War

In a clear sign the digital music revolution is here to stay, Britain's major music retailers are going head-to-head for a slice of the burgeoning - and potentially very lucrative - Internet downloading market.

HMV, the biggest specialist music seller in Britain, made a big splash with the launch of its new digital service Monday, employing the band Razorlight to showcase its library of around 1.3 million tracks for consumers to download from the Internet.

But some of its thunder has been stolen by Virgin Megastores, the country's second biggest music chain, which signed up the Dandy Warhols for an ambush launch of its own digital service on Friday.

Both outlets are fighting for a share of a market that, while still small in Britain, is expected to grow exponentially. A year ago, the total number of songs officially downloaded from the Internet in Britain was 500,000 - the same number is now sold every week.

"The industry is moving on. Digital is here and it's here to stay," said Dario Betti, a new media analyst at IT consulting firm Ovum. "HMV and Virgin have been slower to get into the market but they recognize it's important to be there and not be left behind."

The digital download market in Britain has so far been dominated by Apple's iTunes music store, which offers consumers around 1.2 million tracks.

HMV and Virgin are aiming to break Apple's stranglehold by offering services that will work with several digital music players, allowing wider download possibilities and accessibility. Apple's iTunes software works only with the iPod music player.

"How many customers know that in buying an iPod, they're effectively locking oneself into a walled garden?" said John Taylor, HMV's director of e-commerce.

HMV and Virgin are both planning to offer a separate subscription service, where users pay 14.99 pounds ($27.72) a month to download as much music as they want - the catch being that if they stop paying, they lose all their music.

HMV, which has teamed up with Microsoft for its new service, has also stepped up the competition, making a special 39 pence (72 cents) offer for tracks by some new artists. It also plans to sell recordings of gigs and is formulating a film and computer game download service.

The two retailers are banking on further growth in an already booming market.

About 5 percent of Britons currently own a digital music player while legal digital sales account for less than 2 percent of the market. However, analysts expect online music sales to nearly double from 34 million pounds ($63 million) this year to 65 million pounds ($120 million) next, reaching 261 million pounds ($483 million) by 2010.

"We've taken our time to enter this new and exciting market. Our intention is to deliver a quality service that will...rival the best," said Steve Knott, Managing Director of HMV for the U.K.

Virgin founder Richard Branson is pegging his product's success on user-friendliness, compared to the more technical iPod. Like the HMV version, the Virgin product is compatible with the Windows Media Audio standard. Neither is compatible with the iPod.

"We have always felt that a company with music at its core rather than technology could do so much better for music fans," Branson said at the Virgin launch. "It is so user friendly that even I could use it."

Virgin Digital customers will get free music insurance which will provide a back-up service to replace downloaded tracks if their computer's hard drive crashes. It is offering around the same number of tracks as iTunes.

The HMV program features search and download capabilities, music transferring from a portable device onto the program, CD-burning, streaming radio stations, and HMV playlists. HMV plans to add video capabilities soon.

Knott said that while he has not seen the Virgin program, he's not surprised by the rival's interest in the emerging market.

"I think competition is very healthy," he said. "I would've expected Virgin to be in the game...and we'll compete with them in the same ways as we compete on the high street. I welcome the competition."

Knott said that he expected iPod also to upgrade its offering, but added that HMV plans to continue to sell Apple's iPod players in its shops and bank on its flexible pricing to win over customers.

Betti warned there will be a period of flux as each product is improved and upgraded, likening the situation to that of the Betamax-VHS video player wars in the early 1980s - VHS eventually won out, making Betamax obsolete.

"At least back then you could have a Betamax player and a VHS player at home. Having two portables to carry around would defeat the purpose," he said. "My advice to any consumer is make sure you don't get too attached to whatever you buy right now. You might find later on that what you have has been surpassed."

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